Shanghai Chlor-Alkali Chemical Co., Ltd.'s (SHSE:600618) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

How Do Unusual Items Influence Profit?

To properly understand Shanghai Chlor-Alkali Chemical's profit results, we need to consider the CN¥104m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Chlor-Alkali Chemical.

Our Take On Shanghai Chlor-Alkali Chemical's Profit Performance

Arguably, Shanghai Chlor-Alkali Chemical's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Shanghai Chlor-Alkali Chemical's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 25% per annum growth in EPS for the last three. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Shanghai Chlor-Alkali Chemical, you'd also look into what risks it is currently facing. For example - Shanghai Chlor-Alkali Chemical has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Shanghai Chlor-Alkali Chemical's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.